- Sophie Maes
In today’s global marketplace, businesses increasingly operate on a regional or international scale. As a result, employees are often sent from one country to another on temporary projects or assignments. However, some legal issues may arise when sending employees abroad, even if only temporarily. The article identifies those issues and offers best practice advice that is based on private practice experience of almost 15 years in employment and global mobility issues and studies of case law and jurisprudence with regard to global mobility. When setting up global mobility strategies, HR professionals should carefully consider the following key principles.
Have a look at the overall picture
International assignments are often merely set up from a tax and payroll perspective. However, HR professionals should also consider the employment law consequences which are often neglected. As will be explained below, in many countries, local minimum terms and conditions must be respected even if the contract is governed by the laws of another jurisdiction. Also, immigration requirements may have an impact on how the assignment should be structured. International assignments must, therefore, be carefully prepared and considered from all angles: immigration, taxes, social security, employment law and finally occupational pensions, which often require ad hoc solutions.
Have a global mobility policy in place
It is strongly recommended to have a global mobility policy in place, particularly if many expatriates are sent from one country to another. The policy should explain the principles that apply during the assignment and ideally make a distinction between different types of assignments such as:
- Business trips.
- Short-term assignments up to two years.
- Long-term assignments of between two and five years.
- Expatriation followed by local employment.
Each type of assignment should list the terms and conditions that apply during the assignment. Having such rules in place will make life easier for every party involved, in particular in case of disputes. Of course, when implementing such policy, HR professionals should also consider the local requirements in both the home country and the host country and sometimes tailor-made solutions need to be worked out.
Check the immigration requirements
When preparing an international assignment, the first step is to look at the relevant immigration requirements. Indeed, without the appropriate work permit, visa and/or residence permit the employee will not be able to work in the host country. When preparing an immigration strategy, timing to secure the necessary authorizations should be carefully considered since significant differences exist between the various countries. Further, local practices of embassies and consulates should be scrutinized in advance to avoid unpleasant surprises. Following are some of the immigration rules in place:
In some countries (such as India, Russia, Colombia, etc.), the employer must have a local presence (at least a branch, subsidiary or local representative) to obtain a work permit for the employee. If not, the employee will only be granted a business visa which will not allow him or her to undertake any significant activities. In addition, the employee may also be required to have a local employment contract. Needless to say such immigration requirements have an impact on all other aspects of the international assignment (applicable employment law, social security, taxes and occupational pensions) and should be considered first.
In Europe, EEA nationals do not need a work permit to work in another member state. However, some EEA member states still require Romanian and Bulgarian nationals to have a work permit until 31 December 2013. Non-EEA nationals need prior authorization to work in Europe. Work permits are still a national matter, meaning that a separate work permit is needed for each member state where the employee will work. Exemptions may exist but this should be checked for each member state separately. For example, some member states provide for exemptions for short-term assignments/business travel. Special rules may also apply for intra-group assignments.
It should also be checked if the employee needs a separate visa and/or residence permit to be allowed to enter and stay in the relevant country. In some countries this will not be the case as the ‘‘work visa’’ includes authorization to enter and stay in the country (‘‘one single document’’). In other countries, a separate visa and/or residence permit must be applied for. If so, exemptions for short-term assignments (less than three months) may apply depending on the employee’s nationality and should be checked in the relevant country. For example, US and Brazilian nationals are exempt from having to have a Schengen visa ( 1/4 short-term visa) and can enter and stay in the Schengen area for a maximum period of 90 days in any six month period based on their national passport. The Schengen area includes the following countries: Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Italy, Greece, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Estonia, Czech Republic, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia and Switzerland. Nationals of other countries (such as India, Russia, China, etc.) need a Schengen visa to enter any country in the Schengen area.
Check which law governs the employment relationship during and upon termination of the assignment
For those countries which employees may be assigned to while remaining employed by the home employer (for example, in case of assignments to Europe, the US, Canada, etc.) without the need to have a local employment contract, it should be checked which law will govern the employment contract during the assignment.
As the employee remains in the service of the home employer, the parties will typically opt for the employment law of the home country as the law governing the assignment. However, HR professionals should check if the laws of the host country do not (equally) govern the employment contract during the assignment.
This may be the case in Europe where according to international private law (Rome Convention and Rome-I Regulation), the law chosen by the parties cannot deprive the employee of the more favorable mandatory rules of the country where the employee ‘‘habitually works.’’ There is no definition as regards when an employee is considered habitually working in the host country; all depends on the circumstances of each case and courts usually make a global assessment.
To reduce the risk that the host country will be considered as the employee’s habitual place of employment, it is of utmost importance to maintain as many links as possible with the home country. The following practices can help maintain those links:
- A well-drafted assignment letter stressing the temporary character of the assignment.
- Continued affiliation to the home pension scheme (if possible) and/or benefit schemes.
- Payment in the home country currency.
- A repatriation and return guarantee clause.
- A right to early termination clause.
- A tax equalization clause.
- A ‘‘non-acquired rights’’ clause.
The drafting of the assignment letter is of the utmost importance. In practice, most conflicts appear upon termination of the assignment because the assignment is terminated before its normally foreseen end date or because the employee does not want to return to the home country. In such an event, poorly drafted assignment letters make it much harder to impose repatriation. Further, the assignment letter should also address other issues, like the employee’s (temporary) role and responsibilities during the assignment, who will bear which costs, who will be responsible for any work permit and/or visa processing, etc. [. . .] or reference should at least be made to the relevant global mobility policy.
Check which minimum local standards apply irrespective of the law governing the employment contract
Even if according to international private law, the employment contract remains governed by the home country’s employment laws, some minimum local standards may nonetheless apply from the first day of the assignment.
Again, this will be the case in Europe as a result of the Posted Workers Directive. This Directive requires each member state to set a minimum ‘‘hardcore’’ of local terms and conditions which must in any event be adhered to when working in their country. The following are usually part of this minimum hardcore:
- minimum pay rates;
- maximum working hours and minimum rest periods;
- minimum paid annual leave;
- maternity protection;
- anti-discrimination laws;
- health and safety; and
- conditions of lease of employees.
As a result, employees will always be entitled to those minimum local standards irrespective of the law governing their employment contract. However, significant differences exist between the various member states (for example, as regards minimum wages) and the rules should be checked for each member state separately.
Non-US nationals on assignment to the US will be covered by the US anti-discrimination laws (state and federal) while working in the US. There are no minimum time requirements. If they are working in the US, they are generally covered. In addition, US nationals working abroad for a US-owned or controlled company equally remain generally covered by the US anti-discrimination laws and possibly some other US laws (e.g. the Uniformed Services Employment and Reemployment Rights Act and some state laws) in addition to the laws of the host country.
In case of assignments to Canada, it is technically possible to continue having the employee work under his or her home employment contract. However, HR professionals should carefully scrutinize both the terms of the contract and the manner in which it is applied. Courts in Canada will indeed scrutinize the contract for its applicability. Therefore, HR professionals must be careful to ensure that minimum standards legislation is complied with. If the contract is deemed to be inconsistent with the legislation in the jurisdiction in which the employee works, this may lead to a court finding the contract to be unenforceable.
Check if there is no prohibited lease of personnel
In some countries care should be taken to ensure that there is no prohibited lease of personnel. If the appropriate contractual documents are not in place and the employee receives instructions from the host company, there might be prohibited lease of personnel. This may not only entail criminal penalties but the employee may also be considered as having a local employment contract with the host company with all the consequences thereof, in particular in case of repatriation (employee may claim a severance indemnity from the host country in accordance with the laws of the host country).
Check in which country social security contributions must be paid
There are significant differences in social security contributions to be paid between the various countries. This is even the case within Europe. For example, in case of an annual gross salary of 100,000 EUR, social security contributions amount to the following (November 2012) (see Table I).
Depending on the countries involved, employees may continue to be covered in their home country.
This is the case within Europe since employees can remain affiliated to their home country social security regime for a maximum period of five years provided certain conditions are met. After five years, they need to be affiliated to the host country social security regime. Outside Europe, it must be checked if a Social Security Agreement exists between the countries involved and under what conditions an employee may remain covered in his or her home country during a temporary assignment.
If continued affiliation to the home country social security regime is possible, HR professionals must make sure to apply for the relevant forms (A-1 form (EEA), Certificate of Coverage (Australia, Canada, India, US), etc.) and check if other formalities must be complied with (for example, health insurance card, Limosa declaration (Belgium), etc.).
Check in which country taxes must be paid
HR professionals must also check if a Double Tax Treaty exists between the home country and the host country. If so, employees who are seconded for less than 183 days may under certain conditions remain entirely taxable in their home country. However, it is of utmost importance to carefully scrutinize in each situation the relevant Double Tax Treaty as the wording and the conditions may differ from Treaty to Treaty. As regards US nationals specific conditions apply as they may in any event remain taxable (and have to file Income Tax forms) in the US based on their nationality.
Further, it is recommended to check if any special tax regimes and/or tax rates apply in the host country for foreign employees. In some countries more favorable taxation measures are in place to attract foreign investment.
Check if there is risk of creating a permanent establishment
When assigning an employee to another country to work in that country on behalf of the home employer, care should be taken not to create a permanent establishment of the home employer in the host country. If so, this may give rise to additional corporate tax obligations in the host country.
Table I Social security contributions
Employer contributions Employee contributions Total contributions
Belgium 35,000 13,070 48,070
Cyprus 6,908 3,927 10,835
Czech Republic 18,217 6,270 24,487
France 43,400 20,570 63,970
Germany 11,392 (11,307) 11,804 (10,720) 23,196 (22,027)
Ireland 10,750 3,735 14,485
Italy 33,000 9,190 42,190
Luxembourg 12,790 to 16,050 12,450 25,240 to 28,500
Poland 8,480 13,750 22,230
Portugal 23,750 11,000 34,750
Spain 12,792 2,486 15,252
The Netherlands 8,493 10,748 19,241
UK 12,514 6,151 18,665
Check the impact on occupational pension plans
Unlike for statutory social security, there are no laws governing membership of occupational pension plans in international assignment situations. Instead, this is governed by the membership conditions of the plans concerned. It should, therefore, be checked whether or not an employee will stay a member of the home country occupational plan and whether or not he or she will become a member of the host country membership plan.
Situations of double or no coverage should be avoided. In a group of companies that often sends employees abroad, it is worthwhile to develop international guidelines on such situations. These guidelines should be inserted in all of the local pension plan rules. Most expatriate employees will prefer to stay in their home country pension plans as long as possible. It should be checked if this is feasible, particularly on the tax side (deductibility of pension premiums and taxation of pension premiums and benefits).
Case study: international secondments
Judit is an HR manager in a multinational organization, with its EMEA headquarters located in Brussels, Belgium. The group is working on an important IT project and needs additional staffing for the coming two years. Three employees will be temporarily seconded to Brussels, as follows:
- John, US/German national, IT manager employed by the US company;
- Raji, Indian national, senior IT consultant employed by the Indian company; and
- Yusein, Romanian national, junior IT analyst employed by the Czech company.
Firstly, Judit is required to examine the immigration requirements for the three employees. Being an EEA national, John does not need a work permit but will need an Electronic E card (residence card for European nationals). In Belgium, Romanian nationals are still required to obtain a valid work permit (until 31 December 2013). However, an exemption exists if they are employed by an EEA employer coming to Belgium to deliver services on behalf of their EEA employer. Hence, a service level agreement will need to be executed between the Belgian company and the Czech company. In any event, like John, Yusein will need an Electronic E card to be allowed to stay in Belgium for more than three months. As a highly skilled employee, Raji requires a work permit B in addition to a Visa Type D, which will need to be obtained at the Belgian embassy in India, in order to be allowed to enter and stay in Belgium.
Since the employees may receive instructions from the Belgian project manager, Judit will need to carefully structure the assignment to reduce the risk of a prohibited lease of personnel. If the assignment is not carefully structured, John, Raji and Yusein may be able to claim for prohibited lease of personnel and the existence of a Belgian employment contract for an indefinite duration with the Belgian company. This could be solved by either structuring the assignment as the provision of services or as intra-group secondments.
In addition, Judit will need to carefully draft the assignment letters (or intra-group tripartite secondment agreements) to stress the temporary character of the assignment in order to reduce the possibility that the employees will be able to invoke the very protective Belgian employment laws governing their employment contracts while working in Belgium. However, the Belgian minimum salary and employment conditions, which are criminally sanctioned, will in any event apply on the first day of their employment in Belgium. This has an impact on Yusein as his Czech salary does not meet the Belgian minimum wages so he will need a temporary salary increase while working in Belgium. In addition, Judit will need to decide who will bear associated costs such as removal costs, accommodation costs, schooling, tax and cost of living differences etc. in accordance with the group’s Global Mobility Policy so to ensure equal treatment.
Taxation and benefits
Ideally, the employees will remain affiliated to their home country social security regimes considering the high Belgian social security taxes. This is possible as Belgium has executed a Social Security Agreement with the US (John’s home country) and India (Raji’s home country) allowing them to remain covered in their home country’s social security regime for a maximum of five years. The same applies for Yusein who is covered by European legislation.
To prove that they are exempt from Belgian social security taxes while working in Belgium, Judit will need to apply for a certificate of coverage for John and Raji and an A-1 Form for Yusein. In addition, Judit will need to make Limosa declarations to the Belgian Social Security Authorities before John, Raji and Yusein start working in Belgium.
The employees will be taxable in Belgium. Belgium has a special tax regime in place for foreign executives so to reduce taxes Judit will need to verify whether John, Raji and/or Yusein qualify for this favorable tax regime.
Finally, Judit will need to examine whether the employees can remain affiliated to their home country occupational pension plans.